Question: Mr. Jones and Mr. Smith live on a slope overlooking a lake. Mr. Jones's home is higher than Mr. Smith's, so to see the lake Mr. Jones must look past Mr. Smith's yard. Several years ago, Mr. Smith planted a tree in his yard, and that tree has now grown so high that Mr. Jones can no longer clearly see the lake. Both Mr. Jones and Mr. Smith value their view, but Mr. Smith also values the shade cast by his tree. The table below shows the value that the two neighbors place on their view and the tree. With Tree Without Tree Mr. Jones $100 $500 Mr. Smith $500 $300
a. Suggest a settlement that Mr. Jones and Mr. Smith might negotiate to the problem of Mr. Smith's tree.
b. Explain why the settlement in part (a) makes both Mr. Smith and Mr. Jones happy.
c. Explain why the settlement in part (a) is socially efficient.